'Shocking' with-profits funds trap £120bn

More than a third of the £300bn invested in with-profits endowments, pensions and bonds plans is in doomed funds.

Locked away: £120bn is currently ineffective in poor funds

An investigation by the group Exit With-Profits describes the funds as 'shocking'.

Information provided by insurance companies to their policyholders makes it difficult to distinguish between the good and the bad, it says.

The nine-month study, based on interviews with hundreds of with-profit policyholders, concludes that only £120bn - or 40% of with-profits money - is invested in funds that are effective.

A further £120bn is stuck in poor funds 'in terminal decline' while the remaining £60bn falls somewhere in between.

Matthew Morris, director of Exit With-Profits says: 'Over our nine-month investigation, we were shocked by the intransigence of product providers in supplying even basic product information.

When they did, it was often presented in an incredibly complex way. The confusion suits them as it keeps the money in these funds, which are profitable for the companies that run them.'

Exit With-Profits, which is run by financial planning analysts DMP, looked at five aspects of funds - financial strength, transparency, features of the plan, past performance and future performance - to generate a league table so investors can see at a glance how their company fares.

At the bottom of the table for 'getting it completely wrong', are Canada Life, Equitable Life, MGM, Pearl Group, Sun Life of Canada and Zurich Life.

Only four of the 75 companies are 'getting it right': Aviva (formerly Norwich Union), Prudential, LV and Wesleyan.

But there is no golden rule for all policyholders with one company. For example, if your policy with a poor-performing company matures in a couple of years, it might be best to hang on to it because of a valuable guarantee.